France Told to Tighten Belt as Central Bank Sounds Fiscal Alarm
The governor of the Bank of France has issued a sharp warning to lawmakers as France wrestles with its 2026 budget, cautioning that the country’s growing deficit could soon choke economic progress if not brought under control.
François Villeroy de Galhau said France must draw a firm line on public spending, setting next year’s deficit at no more than 4.8% of GDP to prevent the national debt from spiraling further out of reach. His message comes amid tense parliamentary negotiations over the government’s draft budget – a debate already marked by political fractures and competing fiscal visions.
Prime Minister Sébastien Lecornu, seeking a compromise with opposition blocs, has hinted that a deficit closer to 5% might be tolerable. But Villeroy argues that any relaxation of targets risks undermining the credibility of France’s long-term economic plan.
“France’s debt burden cannot keep expanding unchecked,” he told La Croix in an interview. “Beyond the European rules, a 3% deficit is the level at which we can finally stop the debt from suffocating growth.”
Mounting Debt, Slowing Leverage
France’s public finances have been under growing pressure as years of heavy state spending collide with sluggish growth and rising borrowing costs. According to the central bank, continued fiscal expansion would do little to stimulate output and could instead damage market confidence.
Villeroy said that cutting uncertainty around debt management could have a measurable economic benefit, estimating that even a 1% reduction in household savings – if accompanied by more stability – could lift growth by around 0.4%.
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“More debt is not the answer,” he warned. “What we need is consistency, clarity, and confidence. These are the foundations of sustainable growth.”
A Fragile Balancing Act
While calling for restraint, Villeroy also acknowledged that the French economy has proven more resilient than expected. Growth this year is likely to match or exceed the 0.7% forecast by the Bank of France, helped by steady consumer activity and gradual easing in inflation pressures.
Still, the road to fiscal recovery is narrowing. Achieving the 3% deficit target by 2029 – a benchmark shared by most EU members – will require not just spending cuts, but structural reforms to pensions, taxation, and industrial investment.
For now, France faces a difficult balance: maintaining political stability while tightening its fiscal belt. With debt already hovering above 110% of GDP, the coming months will test whether the government can deliver credible discipline without undermining fragile growth.
As Villeroy put it bluntly, “France doesn’t need another stimulus plan. It needs a plan to stop borrowing against its own future.”
Source: Bloomberg
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